Latest figures offer gloomy economic view

Prices up, manufacturing off and consumers feel pessimistic

Published 4:00 am, Saturday, February 16, 2008

A fresh batch of data on Friday presented a bleak picture of the economy, with rising prices of imported goods, struggling manufacturing and an erosion in consumer confidence.

With the price of oil near record levels, import costs grew in January at the highest annual rate in a quarter century, the Labor Department said. And consumers, responding to a national survey, said they felt worse about the economy than any time since the recession era of the early 1990s.

"This is just horrible," wrote Ian Shepherdson, the chief U.S. economist for High Frequency Economics, a research firm. "The sustained volatility in the markets, the rise in energy and food prices and, of course, the catastrophe in the housing market, is making consumers extraordinarily miserable."

The disappointing data also made investors miserable, sending stocks mostly lower Friday. The Dow Jones industrial average fell 28.77, or 0.23 percent, to 12,348.21 and the technology-heavy Nasdaq composite index slid 10.74, or 0.46 percent, to 2,321.80, while the Standard & Poor's 500 index edged up 1.13, or 0.08 percent, to 1,349.99. For the week, the Dow and S&P each gained 1.4 percent and the Nasdaq rose 0.7 percent.

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Government bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.77 percent from 3.82 percent late Thursday.

The price of imports rose 1.7 percent in January and was up 13.7 year over year, the highest annual rate since the Labor Department records began in 1983. Fuel costs led the rise, ballooning by 5.5 percent last month. Imported food and beverages also cost more in January, and the price of Chinese goods ticked up by 0.8 percent. Export prices rose 1.2 percent, and American companies are also charging more for food, industrial supplies and agricultural products.

Sales of imports are lagging even as export sales surge. The trade deficit narrowed in 2007 for the first time in five years, the Commerce Department said on Thursday.

Manufacturers' woes were reflected in the Empire State Manufacturing survey, a measure of business conditions in New York state. The index fell in February to minus 11.7, its lowest reading since April 2003 and the first negative reading in three years. A sharp drop in orders and payrolls led the decline, according to the Federal Reserve Bank of New York.

Meanwhile, a closely watched measure of consumer confidence, the Reuters/University of Michigan survey, fell to 69.6 in February, the lowest reading since February 1992. It had stood at 78.4 in January.

There was a sliver of good news for the economy. The Federal Reserve reported that industrial production grew 0.1 percent last month, keeping pace with December. Cold weather in many parts of the country pushed up activity at electric and natural gas utilities, which offset a decline in output at auto manufacturers.

Capacity utilization, which measures the proportion of plants in use, held steady in January at 81.5 percent.

Manufacturers have benefited from a sharp rise in export sales, as foreign customers take advantage of the cheap American dollar. But analysts see head winds ahead.

"An increasingly constrained consumer, deepening woes for the housing sector, and no desire to build inventories will all weigh on manufacturing output, which we expect to remain weak for some time," wrote Joshua Shapiro, chief U.S. economist at MFR, a research firm.

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